ECB deputy: Policy must stay loose as inflation lags target

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Abigail Morris

Constancio said euro area recovery isn't done. (Source: Getty)

Abigail Morris

The European Central Bank’s vice president said today the ECB’s monetary policy must remain easy while inflation in the euro area lags below its two per cent target despite policymakers being “highly successful” in driving the EU recovery.

Vitor Constancio, a policy dove, warned in a speech in Frankfurt that the job isn’t done yet.

“We are not yet fulfilling our mandate and that is why monetary policy will have to continue to be very accommodative, assuring favourable financial conditions to foster growth and spur wages and prices,” he said.

The ECB estimates that its monetary policy measures will boost euro zone output by around 1.7 percentage points from 2016 through 2019, which is more than the central bank achieved in previous recoveries, he said.

The currency bloc is on track for its fastest economic expansion in a decade and the EU economy as a whole is set to beat expectations with growth of 2.3 per cent this year.

Still, inflation is far short of the central bank’s target, one of the reason policy makers decided last month to extend the ECB’s quantitative easing programme for most of 2018.

“Our monetary policy measures were not an ‘experiment’ on the economy, but were in line with the policies previously adopted by other major central banks,” Constancio said.

Concerns about potential consequences of the ECB’s policy “have however not materialised in real facts and we can now underline the appropriateness of our monetary policy stance”.